Tribunal allows appeals on educational receipts & depreciation claim for assessment years

The Tribunal allowed the appeals for the assessment years 2014-15, 2012-13, and 2011-12, holding that receipts from hostel and transportation facilities are incidental to educational activities, not separate business activities. The claim of depreciation was also allowed based on precedents and legal provisions. The appeals were decided in favor of the assessee on 21st May, 2019.

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Issues Involved:
1. Treatment of receipts from hostel and transportation facilities as business activities.
2. Disallowance of claim of depreciation.

Issue-wise Detailed Analysis:

1. Treatment of Receipts from Hostel and Transportation Facilities as Business Activities:

The primary issue in the appeal for the assessment year 2011-12 was the addition of Rs. 41,64,154/- by treating the receipts from hostel and transportation facilities as business activities and not allowing the benefit of section 11 on such receipts. The assessee, a society running educational institutions, was granted registration under section 12AA as a charitable trust. The Assessing Officer (AO) treated the fees received for hostel and transportation facilities as separate business activities, invoking proviso to section 2(15) and applying section 11(4A), on the grounds that no separate books of accounts were maintained for these activities. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's decision.

The Tribunal found that the hostel and transportation facilities were incidental to the main educational activities of the trust and could not be considered separate business activities. This conclusion was supported by the Karnataka High Court in the case of Karnataka Lingayat Education Society, which held that providing hostel facilities to students and staff is incidental to achieving the objective of providing education. The Tribunal also referred to its own decision in the case of Delhi Public School Ghaziabad Society, reinforcing that transport and hostel facilities provided exclusively to students and staff are intrinsic parts of the educational activities.

The Tribunal concluded that these activities are incidental to the attainment of the main objective of education and, therefore, the assessee is entitled to the benefit under section 11. The Tribunal allowed the appeal in favor of the assessee on this issue.

2. Disallowance of Claim of Depreciation:

The second issue was the disallowance of the claim of depreciation amounting to Rs. 2,37,86,974/-. The AO disallowed the depreciation claim based on the Supreme Court's decision in the case of Escorts Ltd. and the assessment order for the assessment year 2010-11. The CIT(A) upheld this disallowance.

The Tribunal noted that the matter of disallowance of depreciation was covered in favor of the assessee by the judgment of the Allahabad High Court in the assessee's own case, reported in 394 ITR 712. The Tribunal observed that the amendment in section 11, inserting sub-section (6) by the Finance Act (No. 2) of 2014, effective from 1.4.2015, which excludes deduction by way of depreciation, is prospective and does not apply to the assessment years in question.

The Tribunal also referred to the Karnataka High Court's decision in DIT (Exemptions) v. Al-Ameen Charitable Fund Trust, which held that the amendment is prospective. The Tribunal concluded that the disallowance of depreciation by the AO was not sustainable and allowed the appeal in favor of the assessee on this issue as well.

Conclusion:

In conclusion, the Tribunal allowed the appeals of the assessee for the assessment years 2014-15, 2012-13, and 2011-12, holding that the receipts from hostel and transportation facilities are incidental to the educational activities and not separate business activities, and that the claim of depreciation is allowable. The Tribunal's decision was based on binding precedents and the relevant legal provisions. The appeals were pronounced in favor of the assessee on 21st May, 2019.

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